Key technology of DC/EP

Original title: critical technology of DC/EP

Source:& have spent Gao caixia, li Ming; Internet industry research institute of tsinghua university

A flurry of news about China's central bank's Digital Currency Electronic Payment (DC/EP) has sparked a heated debate. The key technology of DC/EP is discussed in detail in this paper.

At present, the central bank has basically completed top-level design, standard formulation, functional research and development, and joint adjustment and testing. Follow the principles of stability, safety and control from & NBSP; At the end of 2019, pilot tests of internal closure will be carried out in four cities: shenzhen, xiongan, chengdu and suzhou. The first batch of pilot institutions of DC/EP include four state-owned industrial, agricultural, China national bank and three mobile, telecom and China unicom operators. The pilot scenarios include transportation, education, medical treatment, consumption and other fields. The central bank will continue to optimize the DC/EP function and steadily promote the introduction and application of digital legal tender.

The overall architecture

The market acceptance of digital currency depends on its top-level design, including its technical structure. Therefore, the central bank attaches great importance to its market service ability and competitiveness at the beginning of its research and development, focusing on the capabilities of payment convenience, system security, operation flexibility, application scenarios diversification and system efficiency. According to the papers and public speeches of relevant people of the central bank (yi gang, fan yifei, yao qian, mu changchun, etc.), the legal digital currency system of the central bank is likely to adopt a distributed system architecture, combine the advantages of cloud computing technology to deploy the business system, and provide effective support for massive digital currency transactions. DC/EP may be issued with the framework of "one coin, two libraries and three centers", which includes five parts: secure and trusted infrastructure, distribution system and storage system, registration center, payment transaction communication module, and terminal application module (see figure 1).

Figure 1 DC/EP system implementation architecture

Secure and trusted infrastructure.Digital currency infrastructure includes certification center, trusted service management module, big data analysis center, etc. Among them, the certification center is mainly responsible for issuing digital certificates related to digital currency, providing an interface for issuing digital certificates related to digital currency, and providing a secure payment channel for all parties involved in digital currency transactions. The trusted service management module is mainly based on cloud computing to provide the functions of issuing, managing, authenticating and authorizing digital currency applications to use their related businesses. Big data analysis center, mainly using big data, cloud computing and other technologies to analyze customer transactions, to ensure the security of digital currency transactions, to avoid illegal activities. The big data analysis center directly serves the central bank and commercial Banks, and may also include government agencies and associations authorized by the central bank. In case of suspicious events, we should carry out pre-warning and post-accountability, and provide a basis for the central bank to carry out macro-prudential supervision.

Distribution system and storage system.It mainly includes the issue library and the bank library. Among them, the issuance database refers to the database storing the central bank's digital currency issuance fund. The bank bank is a database where commercial Banks store digital currency, accept applications for digital currency from the public and provide exchange services.

Registration center.The registration center is mainly responsible for recording the corresponding relationship between digital currency and user identity, the transaction flow of digital currency, and completing the information registration of the whole process from the generation, circulation, check and verification to the extinction of digital currency. Service daily customer inquiries. It is mainly Shared by the central bank and the Banks.

Payment transaction communication module.Transaction communication module mainly includes online transaction communication, offline communication and so on. Among them, the online transaction communication realizes online payment through the intelligent terminal through the transaction network, and the offline transaction based on the offline transaction communication realizes the offline transaction through the intelligent terminal.

Terminal application module.Terminal application module includes mobile terminal, client, security module and so on. Among them, the mobile terminal is owned by consumers and merchants and integrates communication module and security module, which is embodied in the electronic wallet based on hardware or software. The e-wallet can be connected to the payment platform through the mobile communication network, and can also conduct near-field transactions with other e-wallet terminals. As the carrier and transferer of DC/EP, e-wallet is a new addition to the DC/EP system. It is expected that it will be licensed to operate in the future. We suspect that we may select qualified institutions from third-party payment companies or financial institution service providers and issue operating licenses. Each wallet corresponds to a pair of public and private keys issued by the central bank. The public key represents the national credit and the private key represents the wallet user's ownership of the DC/EP. Whether the central bank will assume the responsibilities of DC/EP custody and agency in the future remains to be further positioned.

DC/EP technology and the economics that may be involved in the application of the extension

The coverage of DC/EP is large, with a wide range of influence and a deep degree of involvement in the industry, which will bring great challenges to the traditional theories of money and banking and finance. We may briefly analyze several theories involved in the application and promotion of DC/EP technology.

Game theory

In addition to the current theory of monetary economics, the technology adopted by DC/EP itself absorbs the ideas of game theory.

The DC/EP technology framework borrows from bitcoin's UXTO ledger concept. In the bitcoin blockchain network, in order to reach a consensus, participating nodes need to consume computing power to bump out the billing right and get the bitcoin reward. As it is the consensus of the whole network, if a node tries to do evil or tamper with accounts, it must control 51% of the computing power of the whole network. From the economic perspective, due to the high cost of doing evil, it will eventually choose to give up tampering, which is the earliest application of game theory in the blockchain bitcoin system.

Game theory is a new branch of modern mathematics and an important subject of operations research. It has applications in many disciplines and fields. Due to the equal status of nodes in the bitcoin blockchain network, the application of game theory can compete for the bookkeeping right of nodes in a fair, reasonable and transparent way. In DC/EP, since the central bank represents the national credit and is the highest credit, it has an absolute say in the issuing time and circulation of DC/EP. Therefore, it is not necessary to compete with the banking institutions for the bookkeeping right, and it also avoids the unnecessary consumption of resources. However, DC/EP is based on part of UTXO's design, that is, financial institutions (also known as nodes) participating in the circulation and transaction will record the DC/EP of users' spending, circulation and transfer on their own books. The way to confirm the transaction is to invalidate the payer's DC/EP and put the receiver's DC/EP into effect.

In addition, in the DC/EP operating environment, game theory can effectively achieve network autonomy and improve the security of the network environment. For example, the private key represents the ownership of DC/EP. The game theory is used to design relevant products. The hacker will give up the attack on the private key due to the high cost to ensure the security of the user's private key.

Since DC/EP is operated in the network, competitive participants will appear. The effective use of game theory, on the one hand, is conducive to preventing the formation of a monopoly and monopoly situation, giving every participant an equal opportunity to participate in, and realizing inclusive finance. On the other hand, it can increase the cost of wrongdoing and violation of the participants, and build a credible ecology.

Network economics

Network economics was produced in the middle and late 1990s along with the progress of network technology and the development of information industry. The emergence of scale economy and scope economy of the Internet has impacted the traditional economic rules and formed the reconstruction. Network effects solve the economic problem of the "tragedy of the Commons". "Tragedy of the Commons" is only to enjoy the benefits of the Commons, prone to free-rider problem, and the network economics is fundamentally solved the problem, when the more Internet users within an ecosystem, the network will be more valuable, participants will also feedback to ecology, ecological the stronger, the more attractive to the customer, the higher the value of the user.

In the value ecological chain of DC/EP, in fact, the central bank constructs the public infrastructure of digital currency through national credit, and starts the system together with financial institutions and market participants. Technology through intelligent methods such as contract, commercial remodeling through the organization structure, industry by associated enterprises the main body of synergy, model through cooperation and sharing, with the use of DC/EP as the main body and the user continues to grow and grow in quantity, the use of DC/EP boundary and scope will continue to expand, the value chain will enlarge unceasingly, finally has great value of overflow, DC/EP development ecology and development potential.

Complex economics

Complex economics is the economics of what is emerging, as opposed to classical economics. Complex economics believes that the economy is an evolutionary complex system, which is unbalanced, uncertain, nonlinear, always evolving, and the economic system is always expanding. Economics can be based on the biological theory and has the characteristics of structure, self-organization, special type and life cycle. Complex economics is a very new player in public policy.

DC/EP is also belongs to the field of public policy, introducing DC/EP in the field of economic and financial variables, economic subject stakeholders will be based on their own cognitive construction corresponding behavior patterns, the emergence of new products, services and organization configuration changes, thus derived form new technology become a new variable, spread more stakeholders, to reignite stakeholders of cognitive change and reaction, this a series of emergent phenomenon, reflects the ductility of the social and economic organization and adaptability. Such changes may stabilize after a period of time and converge to a simple, homogeneous equilibrium state, or there may be constant changes and continuously changing behavior patterns. It shows the complexity, variability and uncertainty brought by the introduction of DC/EP.

Key technologies involved in DC/EP

In the selection of DC/EP technology, the Internet spirit of "freedom, openness, cooperation and sharing" is proposed, which absorbs the development achievements of the Internet and block chain technology, such as encryption technology, privacy protection technology, identity authentication, accounting technology, digital wallet technology and other aspects for reference. In addition, DC/EP technology has implications for national security issues and the possibility of future evolution, with particular consideration given to the issues faced and responsibilities assumed by DC/EP in extreme cases.

Key technologies involved in DC/EP

Legal digital currency USES trusted cryptography as its main technical means. In 1976, Diffie and Hellman put forward the idea of public key cryptography, which marked the birth of modern cryptography. Modern cryptography is based on mathematics, alternating between encryption and decryption, between attack and defense, and between spear and shield. From the point of view of mathematical algorithm, it includes symmetric cipher algorithm, asymmetric cipher algorithm and hash algorithm. In the DC/EP release phase, the central bank generates the public and private keys, which are distributed to the end users. In DC/EP circulation and use of the phase, may use the security chip and credible cloud computing, the trusted execution environment (TEE), secure multi-party computation, and zero knowledge proof encryption medium and a variety of ways, to ensure that the Numbers can be stored in the process of currency in circulation, unforgeable, cannot repeat transactions and non-repudiation, and other functions.

Fiat digital currencies leave room for algorithmic design. In the process of currency issuance, special fields are reserved in the design of legal digital currency to provide space for the introduction of intelligent contract and other modules in the later stage, providing new means to reduce the risk of contract default and credit default by technical means. The smart contract was developed in the 1990s by computer scientist and cryptographer Nick Szabo as a script that could be automatically executed to meet predetermined conditions. Intelligent contract is the basic component and the way to realize contract rules in the era of digital economy, which can solidify business process and improve collaborative efficiency. In the native blockchain ecosystem, ethereum has been used to issue ERC20 tokens with smart contracts. DC/EP USES a smart contract during the release process to set the conditions, lock the release object, and take effect. In the circulation process of DC/EP, intelligent and precise allocation of funds between the central bank, commercial Banks and commercial institutions can be realized with the help of intelligent contracts.

Digital currency will explore regulatory technologies based on big data technology. At the regulatory level of legal digital currency, the central bank will adhere to the principle of "voluntary at the front and real-name at the back" to ensure the penetrative supervision of the regulatory layer, so as to ensure that the whole life cycle of digital currency from issuance, circulation to recycling can be traced and controlled in a closed-loop manner. The central bank will make full use of big data analysis technology and work with banking institutions and third-party payment institutions to promote the development of KYC and AML compliance technologies such as anti-corruption, anti-money laundering and counter-terrorism financing. It will also provide data support for monetary policy, macro-prudential management and financial stability under appropriate desensitization conditions.

Security issues associated with DC/EP technology and their future evolution

From the perspective of security, DC/EP is not only related to national sovereignty, but also related to the security of national and public property. It is the first line of defense to be considered in the architecture of the DC/EP system. Due to the adoption of the dual model of central bank-financial institution, the server and operating system, software system and security standard of the original banking system may not be able to carry the long-term requirements of DC/EP, so IT is necessary to consider the overall upgrading of IT equipment and software. More importantly, IPv4 protocol is commonly used in the Internet protocol layer. There are only 13 IPv4 root servers in the world, among which 1 is in the United States. The other 12 are all auxiliary root servers, of which 9 are in the United States and only 1 is in Japan in Asia. Currently, there is no IPv4 root server in China. Therefore, for a long time, the United States has controlled the entire Internet by controlling the root server, which poses a potentially significant threat to the network security of other countries. However, countries with root servers control other countries' network autonomy to a certain extent. Both the us-controlled SWIFT and China's self-built CIPS systems are based on the Internet. What we need to consider is whether the current RMB or DC/EP can help enterprises to realize global payment and operation on the CIPS system once SWIFT is restricted by the United States in the context of increasingly severe trade disputes between China and the United States. In more extreme cases, if the Internet is cut off, can DC/EP exist independently and truly realize "offline" payment? In short, if the infrastructure at the bottom of IT is dependent on other countries, IT will face the same "neck jam" problem as today's chips, requiring high attention and advance deployment.

From a standard point of view, the fair and malleability of technology should be considered to promote the development of industry. On the one hand, for the domestic market, the central bank should establish the authority, applicability and openness of the standard. At the same time, it should stimulate the enthusiasm of market players to participate, realize the integration of public and private rights, jointly promote the development and application of intelligent contracts and the application and promotion of new business models, and leave enough space for the development of private enterprises. On the other hand, DC/EP also needs to consider compatibility with other central Banks' digital currency (CBDC). At present, many central Banks around the world are committed to the development of CBDC. Although the practice of DC/EP is in the forefront of major countries, there is still a long way to go in achieving the consensus of other countries in terms of standards and interoperability.

From the perspective of technology convergence, in the intelligent society of the Internet of everything and the perception of everything in the future, edge computing will be accompanied by the development of the Internet of things, and computing power will determine the capability of edge computing. The carrier of DC/EP will gradually move from hardware and software to chip, which will be integrated with identity authentication, and even implanted into the brain through the brain-computer interface, so as to realize the real integration of human "core", the integration of things and the interconnection of everything. In the future, the degree of genetic coupling between edge computing, the Internet of things and 5G, AI, big data, blockchain and other technologies will determine the sustainability and development trend of the development of DC/EP.

DC/EP technology selection

In order to implement the spirit of being prudent and controllable, serve the requirements of macro-prudential monetary policies, and promote the application and promotion of DC/EP technology, we selected the best enterprises from several dimensions.

Think in terms of the underlying technology

In the traditional banking system, for the sustainability of the information system, security have higher requirements, on the future of technology adoption, due to the DC/EP continue to use the original central bank - dual system structure of commercial Banks, at the beginning of the deployment, in addition to maintain compatibility with the original system on technology, must also achieve security, reliability, scalability, robustness, IT demands. In addition, due to the DC/EP payment system is to build a new ecological system alone, with the original payment system is parallel, the new identity authentication, registration center and large data centers and digital wallets elements such as function, the original financial institution infrastructure service providers such as third-party payment or other licensed financial institutions could introduce and absorb to the new IT system to build, but you need to find a new orientation in the new operating system.

Under the new operating system, the central bank will enhance data connectivity with the ministry of finance, the discipline inspection commission, the ministry of public security, the ministry of industry and information technology, the ministry of commerce and other ministries and commissions, such as the ministry of finance to better implement precise and flexible fiscal policies, and the ministry of public security to conduct individual identity authentication. Similarly, in the process of promoting and popularizing DC/EP, it also needs the collaboration and cooperation of various ministries and commissions, and the wide use of DC/EP will further strengthen the data sharing and collaboration among ministries and commissions.

From the merchant and user ecology to consider

Considering the rapid promotion and popularization of the country's DC/EP needs, enterprises with a large number of users and commercial users will have a greater advantage. Due to the country to a large bay area of guangdong, the beijing-tianjin-hebei region, Yangtze river delta and pearl river delta area, such as policy support, and good economic foundation, the future possible distribution in the area of industrial cluster, and free trade policy more flexible, open degree is higher, we assume that such regional enterprises may get tickets early and pilot.

In terms of channels, third-party payment service providers, with relatively mature operation experience, have a large number of application scenarios, the number of users and domestic and international channels. In particular, WeChat and alipay have a share of more than 90% in the payment market, providing users with efficient global services. Based on the third-party payment and Libra belong to the same payment tool, suggested that the central bank based on WeChat and pay treasure to certain policy support, promote the international market, on the one hand, can be expanded to the original payment system and market growth space, higher pay enterprise development of the ceiling, on the other hand, allows WeChat and pay treasure to market-oriented operation DC/EP, is beneficial to extend the range of the use of DC/EP, enhance their business flexibility, with Libra full competition in the market.
In terms of hardware support, huawei, xiaomi and OPPO have a huge number of users. Their chips can integrate electronic wallet, identity authentication, smart contract and other plug-ins to deploy a variety of functions, providing great convenience for users to use DC/EP. They can also make full use of the existing users and channels of mobile terminals to promote DC/EP.

Think about it from a capital perspective

As a public good, DC/EP needs corresponding supporting measures and operates on the basic platform and ecological platform in different industries and regions to release its value. As far as capital is concerned, central ministries and governments, as administrative agencies, have the right and obligation to make overall design and institutional arrangements for regional platforms and ecological construction.

On April 7, 2020, the national development and reform commission (NDRC) and the cyberspace administration of China (cac) jointly issued the implementation plan on promoting the operation to cultivate new economic development by "making use of Numbers in the cloud to cultivate wisdom", which took the digital transformation of enterprises as the main line and the "making use of Numbers in the cloud to cultivate wisdom" as the key breakthrough point to accelerate the pace of digital industrialization and industry digitalization. In the process of propulsion, in view of the monomer companies "don't want to turn" turn "can't" turn "won't" problem, need the government to fund as the forerunner, promoting social capital, through the financial leverage, prospectie deployment, finally realizes the elements of facilities, open enterprise interconnection facilities, collaborative innovation, quickly generate the optimal allocation of resources and industrial ecology, construct a whole new way of industrial organization, play the potential of the DC/EP, foster new kinetic energy digital economy.

As the technology selection of DC/EP needs to be repeatedly iterated and expanded in different scenarios, it needs not only the overall planning and institutional arrangement of the government, but also the breakthrough and innovation of market players in reshaping business models, so as to finally help achieve a breakthrough in the internationalization of RMB.

reference

& have spent [1] wang yonghong. Digital currency technology implementation framework [J]. China finance, 2016 (17) : 15-17.
China finance, 2016 (17) : 10-12. [3] yao qian. Understanding central bank Numbers -- a systematic framework [J]. Science of China, 2017, 47:1592-1600.

High rosy clouds

Tsinghua university Internet industry research institute researcher, MBA, with ISO27001 (information security) chief auditor qualification. He has participated in the preparation of books such as blockchain: reshaping the economy and the world (citic press), Internet finance and small and micro financial competitiveness report (2015) (China finance press), and so on. I was responsible for reports including blockchain technology application in copyright field (2019) and blockchain technology application white paper (2018), etc. My main research interests are blockchain, digital economy and financial technology.

Li Ming

Tsinghua university Internet industry research institute researcher, master of economics, mainly engaged in fintech, blockchain finance, digital currency and traditional industries digital transformation and other fields. Participated in the 2020 insurance technology insight report, "the 2019 financial technology application in the small micro enterprise credit development research report, the financial industry of science and technology in 2018, the white series research report compilation, and participate in new infrastructure index, the index of transformation and upgrading of traditional industries, Beijing and other regional industrial park planning and so on many yuan to cooperation projects. Academic achievements include tsinghua university think tank report, the moganshan conference outstanding young papers award, CSSCI core journal papers and many other achievements.

The original address: https://mp.weixin.qq.com/s/48rUQ-iyE1b9Ynu6LNbbjw

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